State Corporation Income and Franchise Taxes

Forty-five states impose a direct tax on corporations, measured at least partially by net income. Michigan, Nevada, South Dakota, Washington, and Wyoming are the exceptions, though Michigan imposes a value-added tax (VAT) and Washington a gross receipts tax. The states impose flat or progressive rates ranging from 2.3% to approximately 10.75%. Nearly all states follow the federal law in defining net income, but many provide for varying exclusions and adjustments.

A state is empowered to tax any net corporate income attributable to in-state activity no matter where the corporation is headquartered. Corporations must apportion their income among the states where they have a sufficient connection (the legal term is nexus) and pay tax in each of those states. Several states tax unincorporated businesses separately.